Income Tax Exemptions Not Available for New SEZs

Jun. 21 – Income tax exemptions for new special economic zones will no longer be available as confirmed by Revenue Secretary Sunil Mitra.

Tax deductions on income will be applicable to existing SEZs based on the latest draft version of the Direct Tax Code. The proposed ruling may affect India’s plans to open 469 new SEZs. “If SEZs are to be given concessions, we do not think these have to be tax concessions henceforth,” Mitra said in a statement.

The government may opt to offer investment-linked perks to SEZ investors as a way of attracting more investment. “…Investment-linked deductions should be possible. Beyond that, profit-linked deductions are not good because significant amount of revenues have to be forgone,” Mitra added.

Special economic zones produce about 25 percent of India’s export goods and offer businesses many benefits besides income tax exemptions.

The government has been regularly making changes to its SEZ regulations. The most recent being the government allowing industrial units to transfer from one special economic zone to another pending consent from the Board of Approval.

In March, the government announced that it would expand the default list of operations that can be carried out independently by special economic zone authorities to include establishing space for banking and warehousing services.